Sell your houses and get back into shares.

That's not the kind of advice you expect from Britain's biggest building society.

In it's latest housing market analysis, Nationwide Building Society said: "Since the end of 1999, blue chip stocks have lost about half their value - contrasting strongly with the housing market where prices rose 64 per cent in the same period.

"This divergence is likely to begin to unwind with equities - the riskier of the two asset classes - moving back towards sustained outperformance relative to housing.

"Even after the decline in equities since 1999, equities outperformed housing by nearly one per cent per annum.''

Shares don't have a roof and a living room so this is hardly the moment for reckless gambles.

Nationwide recognises that special factors - low interest rates and an acute shortage of homes - give extra strength to the housing market.

But whatever the building society says, many households presented with an unexpected £25,000 windfall in Aunt Agatha's will, have only one thought in mind - bricks and mortar.

In the second half of 2002, buy-to-let lending totalled £6.7 billion - 50 per cent up on the same period in 2001, making a total £12 billion for the whole of 2002, according to the Council of mortgage Lenders.

UCB Home loans estimates there are 275,500 buy-to-let mortgages outstanding, worth £24.2 billion. In December 1998, there were just 28,700 buy-to-let loans, totalling £2 billion.

The loan-to-value ratio on buy-to-lets is around 75 per cent, so investors have put down £8 billion in cash as deposits.

As prices in London and the South-East peak, investors seek out cheaper provincial areas, says UCB.

Winchester is so expensive that investors prefer Swindon and Weymouth, while overblown Brighton and Hove loses out to Eastbourne, Bexhill and Worthing.

Wembley is booming in London. Aylesbury and Hemel Hempstead are good areas to let to youngsters who cannot hope to buy in Hertfordshire, while Wolverhampton, Coventry and Birmingham earn solid income from students in the Midlands.

Favoured investor areas in the North include Wakefield - cheaper than Leeds - and terraced houses at £40,000 apiece in towns like Burnley, Rochdale and Bury.

Loans for investor buyers are cheap, too.

Ray Boulger, of brokers Charcol, tips a two-year tracker, starting at 4.47 per cent and a Mortgage Express loan at 4.99 per cent fixed for two or three years.

Malcolm Harrison, spokesman for the Association of Residential Letting Agents (ARLA), said: "People are looking further afield but if they have savings or inherited money, property is bound to appeal when rates are so low.

"A weaker housing market does not necessarily deter investors. When house sales weaken, rental demand tends to rise.''

Investors who got in as buy-to- let took off in 1997 are sitting pretty but it's a lot harder in today's market because:

*The big surge in property values may be over, with prices fully adjusted to a new era of low interest rates.

Rents are static, even falling, in many areas. Paragon, a specialist provider of buy-to-let mortgages, estimates the yield on rented property has fallen from ten per cent to eight per cent in the last 18 months.

Finding the right property is becoming harder. Builders have pushed prices so high that it is difficult to get decent returns on new property. Older property is more problematic because maintenance costs are higher and a concentration of tenants in a street can depress values.

Older houses mean lower rents, raising the risk of problem tenants. It's a wider problem than many realise.

Heather Jan Brunt, of Landlord Action, a nationwide company promising speedy action for landlords against tenants, said: "Landlords used to belong to a particular class.

"Now there are many novice landlords and some move tenants in quickly without checking references thoroughly.

"If payments stop, some landlords leave it for a while before they speak to the tenants with the result, in one case, of arrears of more than £30,000.''

Landlord Action claims to tackle problem cases without the delays and expense of involving solicitors.

The first step involves serving a notice on a tenant, usually during the evening, warning that if arrears are not paid within 14 days a possession order will be obtained in court.

It costs a landlord just £98 plus VAT and in six out of ten cases it solves the problem.

Johnathan Chippeck, who helped found Landlord Action when he hit problems with some of the 42 properties he owns in London and Luton, said: "If tenants who fail to pay the rent are subject to a possession order, their credit rating can be affected.

"A credit rating can affect your mobile phone, your mortgage, store cards and major purchases. If you get a judgement, you could have difficulty getting credit for many years.''

Landlord Action's booming caseload - particularly in London and the North-West - is a reminder old Aunt Agatha's money is not necessarily best invested in bricks and mortar.

Friday April 25 2003